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With the Income You Need to Buy a Median-Priced Home rising - you may need to Learn About Adjustable Rate Mortgages to preserve affordability.

With the Income You Need to Buy a Median-Priced Home rising - you may need to Learn About Adjustable Rate Mortgages to preserve affordability.

Can I use an equity loan to pay off my mortgage?

Keith Gumbinger

Q: My home is valued at $195,000. I owe $127,000 on the mortgage. I want a 10 year equity loan to pay off the mortgage. Can I find lenders to do this?

A: Certainly! However, you'll find that rates for fixed-rate home equity loans (second mortgages) are usually much higher than those on first mortgages -- anywhere from a couple to several percentage points higher.

Not all lenders still make traditional lump-sum home equity loans, but many will allow you to take out a home equity line of credit (HELOC) and convert it into a fixed-rate, fixed-term repayment schedule. However, the same higher-than-a-first-mortgage-rate issue applies, so even if the upfront costs to use this method of paying off your existing loan may be low, you'll likely spend a lot more in interest than you would if you had considered other options.

A short-term first mortgage -- 15 years or less -- can be had at about 4% or so, and many community banks and credit unions will write you a new 10-year first mortgage to pay off your old loan.

Shop around; it shouldn't be too hard to find mortgage lenders to offer you great ten-year first mortgage rates, but if you cannot find one that works for you, consider a 15-year term, then simply make extra payments to make your mortgage any term you want.

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